A four percent allocation to bitcoin lifted annualized returns in balanced portfolios to 17% from 11.1% since 2017 while adding only one percentage point to maximum drawdown, according to a recent CoinShares report.
Key Takeaways:
- Four percent bitcoin allocation boosts portfolio returns to 17% annually while adding only 1% to max drawdown
- Bitcoin fell 4.5% during the week ending May 18 despite CLARITY Act advancement as macro conditions tightened
- Strategy added 24,869 bitcoin at $80,985 average, bringing total holdings to 843,738 bitcoin
The performance data arrives as bitcoin trades near $77,000 after failing to hold above $80,000 following the Senate Banking Committee’s 15-9 vote to advance the CLARITY Act out of committee May 14, according to CoinShares. The portfolio analysis shows bitcoin’s 4.5% decorrelation to traditional stocks and bonds can improve risk-adjusted returns even during periods of price weakness.
The study examined balanced 60/40 equity-bond portfolios rebalanced quarterly since 2017, according to CoinShares. A four percent bitcoin allocation increased the Sharpe ratio to 1.07 from 0.60, indicating improved returns relative to risk.
Bitcoin dropped 4.5% during the week ending May 18, marking its worst weekly performance since February, CoinShares data showed. The decline came despite positive regulatory momentum after the Senate Banking Committee passed the CLARITY Act in a 15-9 vote.
The macro environment has turned more challenging for risk assets. April producer prices jumped 1.4% month-on-month, the largest monthly increase since March 2022, driven by a 15.6% surge in gasoline costs tied to the U.S.-Iran conflict, according to CoinShares. Fed funds futures now imply a 44% probability of a rate hike by December.
Spot bitcoin exchange-traded funds recorded $1.039 billion in net outflows during the week ending May 15, ending a six-week inflow streak, according to CoinShares. Despite the near-term outflows, ETF products remain a key vehicle for implementing strategic allocations like the 4% portfolio weighting. The CoinShares Bitcoin ETF (BRRR ), which tracks bitcoin, holds $427.4 million in assets under management and charges a 0.25% expense ratio, according to ETF Database.
Strategic Bitcoin Buyers Remain Active
While exchange-traded funds saw outflows during the week ending May 15, corporate buyers continued accumulating. Strategy, Inc. (MSTR) added 24,869 bitcoin for $2.01 billion at an average price of $80,985 during that same week, bringing total holdings to 843,738 bitcoin at an average cost of $75,700, according to CoinShares.
Both corporate treasuries and institutional portfolios are increasing bitcoin exposure, though for different reasons. The four percent allocation model shows bitcoin’s low correlation to traditional markets provides diversification benefits that persist even during drawdowns, according to CoinShares. Maximum drawdown increased to 21.3% from 20.3% in the benchmark portfolio, a modest trade-off for the improved return profile.
Alternative cryptocurrencies showed resilience during bitcoin’s recent weakness. While it recorded $982 million in outflows during the week ending May 18, assets like XRP and Solana continued attracting inflows of $67.6 million and $55.1 million respectively, according to CoinShares.
See more: Altcoins Hold Firm Amid Bitcoin Outflows
For investors seeking broader digital asset exposure, the CoinShares Altcoins ETF (DIME) holds a basket of alternative cryptocurrencies through exchange-traded products, according to ETF Database. The fund holds $1.7 million in assets and charges a 0.95% expense ratio.
For more news, information, and strategy, visit the CoinShares Crypto ETF Hub.
